SBA Lending Matters Newsletter
A Word from Arne

On April 7th, Maria Contreras-Sweet was sworn in as the 24th Administrator of the Small Business Administration, succeeding Karen Mills. Ms. Contreras-Sweet has a strong background in both the private and public sectors, where she served in various governmental positions. She was the first Latina to hold a California state cabinet post and was responsible for managing a $14 billion budget and 42,000 employees as Secretary of Business.

Prior to arriving in Washington, Contreras-Sweet founded Pro America Bank, the first Latino organized commercial bank in more than 35 years. As the bank’s chairwoman, she focused on providing access to capital to small- and medium-sized businesses. Ms. Contreras-Sweet also founded Fortius Holdings, a venture capital firm specializing in emerging small businesses.

The Small Business Administration will be well served by the wealth of both private and public business experience that Maria Contreras-Sweet brings to the agency. All of us at Holtmeyer & Monson extend a warm welcome to our new Administrator.

With sales of guaranteed premiums remaining at a historic high, SBA loan activity is maintaining its upward climb. We’ve seen a noticeable increase in small business lending from our clients this year, and a general increase in business activity in markets throughout the country. The uptick has been especially strong since the ICBA convention in March, with lenders becoming more active and making effective and strategic use of government guaranteed loan programs.

If you don’t know how to begin benefiting from SBA lending, give us a call. As the only qualified SBA Lending Service Provider endorsed by the Independent Community Bankers of America, we’re happy to answer your questions and serve as your out-of-house loan department.

Featured Article

Best Practices: Updated Rules Regarding Recoverable Expenses on 7(a) Loans
By: Timothy D'Lauro
http://www.starfieldsmith.com

On April 7, 2014, the SBA published Information Notice 500-1311 regarding new guidance for when a Lender can recover expenses on a liquidated SBA 7(a) Loan. This new Notice requires Lenders to be more organized and diligent when attempting to recover expenses and limits the number of opportunities Lenders have to make such requests.

Once a loan has gone into liquidation status and the Lender has exhausted all other reasonable recovery options, it prepares to submit its Guaranty purchase request. From the time the loan first shows signs of becoming troubled, the Lender will begin to incur expenses in trying to collect monies owed on the Note, preserving or disposing of its collateral, or otherwise trying to enforce the loan documents. To the extent such expenses are deemed reasonable, many of them can be recouped by the Lender if it meets the guidelines for Recoverable Expenses listed at Page 141 of SOP 50 57.

Previously, Lenders could submit requests for reimbursement at 3 different stages:

  1. Submission of Loan Guaranty Purchase Request
  2. When Recoverable Expenses Total $5,000 or More per Loan
  3. Submission of the Wrap-Up Report

The new guidance set forth in the Notice now only affords the Lender two opportunities to recover these expenses, or else the right to recover from the SBA will be forfeited. Lenders will no longer be allowed to submit requests of greater than $5,000 whenever they wish. In the SBA Information Notice, the SBA states that the goal of this change is to streamline the process in order to provide higher quality service and quicker turnaround times. If Lenders are constantly sending in requests piecemeal, the process will be delayed, and there is a greater chance of requests being missed.

Lenders should be aware that if they want to be reimbursed for these expenses, they should make sure all of their expenses that can be recovered are included in either the Lender’s initial Guaranty Purchase Package or its final Wrap-up Report/Charge off Tabs.

The Information Notice states that this change was made to speed up the response time for the requests. Another means of expediting the process is for Lenders to use the preferred format for CPC expense recoveries listed by the SBA in the Notice. Lenders should use the tab system recommended by the SBA loan center they are submitting the request to in order to better organize their submissions.

Note to Lenders: The Information Notice states “Lenders that have already submitted Recoverable Expense requests on loans that are not ready for Wrap-up will not have to resubmit their requests with the Wrap-up Report, unless the information previously submitted was incomplete.”

Additionally, if there are multiple loans to the same Borrower, and the expense incurred is related to collateral, the expense and recovery “must be allocated to the loans according to the priority of the lien securing each loan.”

For more information regarding recoverable expenses on 7(a) Loans, please contact Tim at [email protected] or 267-470-1182.


Regulatory Corner

SBA Eliminates Personal Resources Test
Effective April 21st, the SBA eliminated the “Personal Resources Test” requirement from the 7(a) and 504 Loan Programs. Previously, individuals with 20% or more ownership in the business (or actively engaged in managing it) were required to use their personal resources before SBA would grant financial assistance. Even though the SBA has eliminated this requirement, the agency still believes prudent lending practices dictate that the borrower’s business should be adequately capitalized and, if not, that available personal resources from owners and principals can be injected or pledged as collateral for a particular SBA loan. Call us with any questions.

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SBA Hot Topic
New changes for Form 4506-T Tax Verifications. Lenders must verify and reconcile applicant’s financial data with IRS-filed tax returns with statement verifying completion by whom and on which date PRIOR to submission of loan application to the SBA. H&M uploads signed electronic loan applications after receipt of executed verification documents: SBA Form 159 Compensation Agreement, SBA Form 4506-T Tax Return Verification, and H&M Lender Fee Agreement.

 

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